The Palo Alto of Asia
Surry Hills, Sydney
Ten years ago, Surry Hills was a sleepy neighborhood on Sydney’s inner fringe. The remnants of the garment business lingered as hip cafes, design stores and artist studios popped up like wildflowers in and amongst the quiet terraces and laneways.
Back then there were murmurings of what was to come but even in 2011, Surry Hills-based start-up companies like Canva and AfterPay weren’t yet ideas, let alone the powerhouses they are now. Fast forward to today and the scene has been transformed: within Surry Hills proper (or a few blocks into the immediately surrounding neighborhoods) lie a bevy of companies whose collective market capitalization is fast approaching $60 billion. And that is without counting $61 billion Atlassian, who’s shiny new headquarters is going in at Surry Hills’ Western edge, near Central Station.
To put that in context, that combined value at $120B of Surry Hills and environs market capitalization approaches that of Australia’s most valuable companies (BHP, Commonwealth Bank, and CSL for example). And the employment in tech has also soared. For example, a LinkedIn search for people located in Greater Sydney with “startup” in their profile returns over 28,000 people (and this is surely a small subset of the number of employees at tech companies in the area who don’t happen to have the word ‘startup’ on their LinkedIn CV). By comparison, BHP employs 20,697 people in Australia.
It wasn’t long ago that if you were a tech entrepreneur or start-up, you needed to be in Silicon Valley to have a shot at making it big. But in recent years, that all began to change. Innovations such as Zoom, Facebook, WhatsApp, and Slack, alongside ubiquitous and immediate industry and media insights via online news and apps like Twitter, Clubhouse, Apple Podcasts and Substack leveled the playing field and allowed start-up hubs to emerge all over the world. Covid simply accelerated a process that was already in full swing.
As I wrote in “Australia: Global Tech Hub” back in 2019, Australia was on its way to becoming one of the world’s leading hubs. I noted that the ‘lucky country’ had the crucial three ingredients for success: an amazing quality of life, the fourth largest superannuation assets of any country in the world (more than $3 Trillion), and over 40 universities churning out more PhDs than all but nine other countries in the world.
As the table below shows, the valuations in Surry Hills and surrounds are finally catching up to this promise (including two Decacorns, three Unicorns and a bevy of Soonicorns).
Surry Hills is also home not just to my firm, King River Capital, but the other major Aussie VCs like Blackbird, Airtree, and SquarePeg who collectively control several billion dollars in tech startup equity value. When, in one neighborhood, you have all that VC money combined with nearly $120B of start-up market capitalization and you mix it with their innovative and entrepreneurial cultures, the start-up flywheel really starts to spin.
Significant percentages of start-up companies are owned by employees and founders, with the rest owned by their financial backers, the angels and venture capitalists. Those employees and investors eventually have the liquidity to start to redeploy that cash. Many will buy big houses of course but they also start backing new startups with cash and experience won through the ups and downs of their start-up journey. As time goes on, more and more cashed up employees will spin out from the big-name tech companies to start their own companies.
This is how a flywheel starts to spin. This is how a hub becomes a self-reinforcing cycle of innovation and wealth creation. We saw the beginnings of it back in 2019 when I wrote the original piece on start-up Australia. We’re seeing the fruit ripen as we speak, with Covid being a hyper-accelerant. Expect this next stage of second and third generation founders and angels to come soon. And with it will be a flood of new ideas, breakthrough technologies and increasing wealth in Surry Hills of course, but throughout Australia’s big cities and, thanks to Covid, the most attractive small towns across the land. Earlier in my career I recall seeing this exact phenomenon unfold in the 1990s and 2000s in California and we’re starting to see that phenomenon already in our deal flow here in Australia, with a Covid twist of remote teams spread out across the East Coast of Australia and beyond.
After witnessing the early days of Israel’s start-up economy and investing in several outstanding businesses there, I was struck by the similarities when I first moved to Sydney. That was why I used to say that Australia was the Tel Aviv of Asia. However, I’ve begun to change my tune. The momentum is so strong and the fortunes being made are so great, I now say, with only a hint of a jest, that Surry Hills is looking more like Palo Alto every day.
Z.R.
